The Productivity Challenge of Our Time

Lately there's been discussion about personal "moonshots", and if I were to try and describe my own, it would include addressing the ways we currently think about the nature of productivity gains. All the more so, since measurable productivity is closely linked with the economic theories we continue to rely on. That said, have neoclassical theories re productivity outlived their "usefulness"?

Arnold Kling thinks so. In recent posts, he writes:

My personal moonshot is that I wish to be a leader in overthrowing neoclassical economics.

...As I see it, neoclassical economics is characterized by two essential propositions. 

1. Production is a process that employs two primary factors - labor and capital.
2. The distribution of returns to labor and capital reflects their respective contributions to the production process. 

Kling suggests labour productivity is now a "nonsensical" number, given today's numerous intangible factors of production. Nevertheless, if it proves "impossible" to sort out how we collectively think about intangibles, GDP as concept will only face more excessive scrutiny in the years ahead - some of it unhelpful. Alas, devaluing both GDP and output measure without concise replacements, is not a desirable approach. Any supposed inability to model today's economy of seeming intangibles, ultimately means problems for accurate monetary representation, as well.

There's potentially good news in all this confusion. Since the basic labour to capital nature of tradable sector production remains essentially unchanged, neoclassical logic remains important as part of our economic foundation. That said, its applicability would be better utilized in a dual modeling framework, where productivity outcomes depend on whether tradable sectors or non tradable sectors are observed. Even though intangible factors affect the labour calculations and production of tradable sectors to some degree, the tangible nature of tradable sector output is still readily observable, as contrast with the time based product of non tradable sector activity. In particular, today's non tradable sector intangibles, suggest that something is essentially different, re societal organization of labour and capital.

Part of the productivity challenge, is to break intangibles down into understandable elements, especially since doing so also makes them more amenable to output gains. Even though we can't expect to change the intangible nature of government compensated labour, or professionally defined (time based) product - hidden as they are in other measures - time arbitrage would provide a long term approach to generate output on more tangible terms. As a direct means of wealth creation, time arbitrage also would not be subject to the political limits of fiat monetary representation, as is the case for government compensated labour and professional capacity.

Consider for instance that for tradable sector activity, a Solow framework for output gains still applies. The problem comes in when the Solow framework is applied to the time based product of non tradable sector activity. Should aggregate time participation be reduced by technology in these settings, arbitrary losses in the production and consumption of time based product may also occur, with little if any gain in either output or productivity. This is one reason why it is so important to have a better understanding, of the nature of what we now call intangible factors.

Let's consider how we derive benefit from time based product, so this form of economic interaction might gain some much needed tangible definition. In time based product, the commitment of time and specific place, are central to each individual's immediate cost. Labour, or derived time preference, becomes linked to human capital in the form of our personal investment. Time and place are utilized for mutually experienced product, which embodies production and consumption at the same time. How so? First, consumption is not just what the end consumer seeks, but also the provider, who often finds the act of provision (production) to be a highly desired consumption good in its own right. In other words, the work we desire, might be one of the most important "products" we choose to purchase in the course of a lifetime, despite the high risks that are frequently involved.

Now, consider the interactive nature of time based product, for recipients or end consumers. For the latter, even though they may not be personally engaged in specific production roles with their providers, the personal interaction which takes place can still factor into future productivity roles (direct or indirect human capital investment) on the part of the recipient.

One way to make this interactive relationship more tangible, is to utilize time as the primary economic unit for measurable output. While other recorded definitions would exist alongside this approach (particularly in terms of shared knowledge transmission and dispersal), mutually compensated time would be recorded for purposes of GDP. Importantly, time arbitrage would also provide records of the knowledge, skill and other activity that provider and recipient find noteworthy in specific interactions, as opposed to more static forms of skill representation as presently recorded for purposes of GDP.

Hence time based product via time arbitrage methodology, would combine human capital and labour (or expressed time preference), as simultaneous production and consumption. Greater productivity over time accrues via a continuum of mutual skills acquisition, as knowledge use patterns are continuously recorded by the groups involved. While these recorded knowledge and skills gains by participating groups are also quality gains, such gains can take place without the internal inflation which has long been associated with high skill time based product. Time arbitrage as a relatively constant commodity value, makes it simpler to determine both the extent of services output and consequent production gains, since the output of this decentralized services capacity isn't muddled by general equilibrium transmission.

The productivity challenge of our time, is perhaps not so much about "throwing out" the old models, but recognizing the dual nature of tradable sector and non tradable sector production. Is it possible to redefine the latter on tangible terms? Can time preferences gain economic validity? To clarify the production potential of time based product, the social implications of mutually desired time preferences would need to be recognized. After all, mutual time preferences are quite different from the externally defined labour components of tradable product. Indeed, few other aspects of economic activity hold the same potential, for greater economic participation and inclusion.

Moving Time Value Towards Recognizable Wealth

Knowledge use became a major economic component in the twentieth century. Even so: in many instances, it wasn't sufficiently clear, how knowledge and skill actually contributed to discernible progress. All too often, specific forms of knowledge use have become a judgement call, which governments attempt to provide on behalf of their citizens. Yet the process mostly makes populations less certain over time, what they've actually gained. Perhaps it would be easier to convince societies the worth of knowledge, should its use become more closely connected to personal time value. After all, a direct time/knowledge economic connection, would allow the use of knowledge to be measured - hence accounted for - in increments of reciprocal time.

Granted, it's easier on a number of levels, for institutions to make note of time use patterns after the fact. Which also allows everyone to gradually sort out the bill, well after the dealing's done. But this approach - flexible though it is - gradually plays havoc with long term budgets, the services needs of lower income levels and finally, populations as a whole. And given what we know about Adam Smith's attitudes toward wealth creation, chances are he would not have considered these open ended and knowledge based service patterns, capable of moving society forward. This is no small matter, given the dominance of time based service formation as a part of today's economies.

Fortunately, knowledge use in conjunction with tradable product, gains measurable value through recognizable output which is accounted for at the source. Whereas non tradable sector time product often expects citizens to take on faith, the ways knowledge are monetarily compensated in the process. Even though non tradable sector private institutions may be more accountable than their public counterparts: if the knowledge they utilize is purposely limited at the outset, even responsible accounting can't detract from the diminished monetary velocity - however small - which is likely to result from captured wealth. In other words, both public and private approaches to the coordination of time based product, can gradually subtract from incremental and reliable wealth creation.

The dominant sectors of our most complex economies, are heavily dependent on time based product - much of which is secondary market activity. In the last year or so, I began to more closely consider how the dependence of secondary markets on primary markets, affects overall equilibrium structure. As secondary markets continue to crowd primary markets, political pressure grows to dismiss knowledge based activity, where possible. If some of this pressure appears indiscriminate, it's reached a point where political constituents aren't necessarily rational about the process. Yet people are right to worry about slashed budgets, when many normal means of knowledge use preservation are also being threatened. By way of example, is this recent announcement of layoffs at M.D. Anderson, indicative of what might become a growing trend?

Ultimately, secondary market activity should not have to be diminished, in relation to what already exists in this regard. Instead, it would be better to supplement secondary markets with a greater degree of primary market activity for knowledge use. Even though Obamacare may soon be a thing of the past, the fact neither public or private interests are prepared to preserve valuable marketplace output, could nonetheless mean further difficulties for hospital budgets. By bringing more knowledge use into primary market roles, one might also hope for fewer hospital layoffs in the future.

How might a restoration of knowledge based wealth, take place on primary market terms? Time value can be organized to function much as any other valuable commodity in primary markets. In order to do so, a time continuum would be internally generated for a broad range of time linked services and knowledge use. What allows for recognizable wealth to be formed at the outset, are coordinated services patterns which allow matched reciprocity to become immediately possible, instead of at some point in an undefinable - hence not always accountable - future.

Wealth creation at the outset, would result from matched time value with individuals who already live and work in close proximity with one another. In a sense this process can appear as bartered time, which has been reasoned away because "it's hard". But barter did not take place in a coordinated time use continuum. Thankfully, we have money to provide the coordination roles which supplanted earlier forms of barter, especially for the tradable goods which existed well beyond local resource capacity. Nevertheless, money works best, as a signal for product which is separate from time. As a coordination signal for time based product, money begins to suffer distortions early in the process, because time is a fixed scarcity, in relation to the random scarcities of other resource capacity.

Consequently, government efforts to assist the coordination of time based product, have carried substantial trade offs. Even though government debt for fiscal transmission is reasonably secure (government debt represents someone's asset), each declared asset is subject to countervailing forces. Consequently, fiscal transmission cannot always contribute to a full range of knowledge use preservation.

While a time based continuum for organizational capacity includes trade offs much as anything else, the equal starting value this approach utilizes, makes it possible for local groups to eventually provide reliable signals for the production and consumption of desired services. Since these groups organize for internal reciprocity and immediate time based wealth, they don't have to wait - and hope - for broader sets of equilibrium factors to give a green light to their productive pursuits.

Establishing new productive routines and habits, of course includes inevitable adjustments for the changing wants, needs and challenges of participating groups. Yet the real value consists in being able to maintain normal economic routines which are not constantly broken down, just because some product formations are only temporary for the participants involved.

One Day Perhaps, Common Sense at the Margins

Why not common sense in the center, where it seemingly belongs? There's too many preexisting obligations all around - some of which have been a long time in the making. Governments and special interests alike, sacrificed political centers in ways that don't readily allow populist reactions such as Brexit to get at the root of the problem. Some noted in the Brexit aftermath that citizens wanted greater national autonomy, but for "the wrong reasons". What might that mean, for would be leaders who are anxious to make their countries "great again"?

Consider how governments became more involved in the economy, while constructing fiscal transmission processes via fiat money in the twentieth century. Where once the issues of fiscal revenue and redistribution were simple, they grew in complexity, as locally generated wealth transitioned to more specific and often, disparately held sources. When agriculture was still a primary wealth source for many populations, wealth creation meant understandable loops of production and consumption which - despite their simplicity - were also internally complete. In a sense, this local wealth "trickled up" to additional wealth generation. Even though these earlier patterns scarcely resemble today's non tradable sectors, they nonetheless served as a base from which tradable sector formation was able to grow and evolve.

In Adam Smith's time, governments expected to rely on the wealth generating capacity of their own citizens, regardless of world events. Might similar reasoning have factored in to Brexit votes? After all, a nation's economy supposedly represents its own citizens. Or does it? Again, Adam Smith:

But though a particular merchant, with abundance of goods in his warehouse, may sometimes be ruined by not being able to sell them in time, a nation or country is not liable to the same accident. The whole capital of a merchant frequently consists in perishable goods destined for purchasing money. But it is a very small part of the annual produce of the land and labor of a country, which can ever be destined for purchasing gold and silver from their neighbors. The far greater part is circulated and consumed among themselves; and even of the surplus which is sent abroad, the greatest part is generally destined for the purchase of other foreign goods. 

Doubtless, Brexit is a strongly held desire to rely on internal sovereignty. Look more closely for locally generated wealth in the present, however, and in some respects, a redundant phrase may apply: "There's no there, there." Indeed, the meritocratic and asymmetric compensation which nations have come to rely on, is based not on the circulation of locally held wealth, but that which more closely resembles the general equilibrium conditions of tradable sectors the world over. Meanwhile, central bankers mistakenly attempt to control the economic value of their nation's non tradable sectors, instead of supporting domestic aggregate spending capacity and the monetary representation of their own citizens.

Despite the benefits of applied skills preferences, total reliance on meritocratic structure, means too many citizens inadvertently become economic liabilities, in aggregate. When governments lose access to internally and symmetrically generated wealth, they rely excessively on externally defined sources of wealth generation. In other words, the very wealth of globalization, which governments and nations are increasingly inclined to react against. Still, the problem for nations is not that globalization was somehow "wrong". The problem was that nations allowed their non tradable sectors to completely rely on the gains of globalization, instead of finding means to generate new sources of economic access and wealth at local levels.

As more nations (and occasionally, states) consider secession, they need to take a much look closer at the structural circumstance which created their primary problems in the first place. The ability to generate reliable economic value (safe assets) closer to home is in doubt, since knowledge use is not only closely held, but dependent on the fruits of globalization even now. At the very least, it would be possible to rebuild and preserve applied knowledge for broader use, at the margins via alternate equilibrium.

The problem is not meritocratic constructs per se, but that they are the only pathways nations presently have, which are fully capable of providing much needed economic value. One can only hope that the winds of political uncertainty will not threaten to unwind the fiat monetary systems which for now are still capable of rewarding meritocratic structure. In the meantime, national revenues remain mostly dependent on the same global constructs, which governments sometimes wish to disavow.

New Corporate Structure: Some Wage and Income Concerns

Wages are more closely associated with local capacity for hourly compensation, while income takes into account resource capacity beyond personal input. Wages and income for tradable goods are today's primary role, for the wealth formation most capable of expansion. Tradable sector income represents easy to quantify product formation and long term growth potential. Whereas, the secondary income role (i.e. non tradable sector income in general equilibrium), more closely reflects a nation's relative role or international positioning, in terms of time value formation.

Knowledge use systems would provide more room, for non tradable sector formation that need not be dependent on the resource capture of political roles. These systems would transform local coordination for services into a new source of wealth, via time value as commodity. Through the assignation of time value as commodity, individuals would be able to assume a direct and primary role in wealth creation, for the first time. This process could allow time value to overcome many of its limitations as a non tradable factor in economic activity. As a quantifiable commodity, time value becomes capable of assuming growth potential in the same sense as tradable sector wealth.

The new corporate structure this process would entail, delineates wage and income differential through a distinct process of separation. Such distinctions - embedded in local education - could allow participants to gain a better understanding of their own relationship with resource potential.

An ability to ascertain differences between wages and income is important - not just in terms of personal responsibility, but also as means to determine connectivity between local economic conditions and those of surrounding economies. Ultimately, local separation of wage and income in terms of economic activity, could also make it easier for citizens to understand factors which contribute to representation for nominal income.

How would knowledge use systems delineate the crucial differences between wages and income that matter most? By protecting time value - via wage to asset formation - from some of the liquidation risks that can destroy the impact of small wage potential. Wage compensation would gain protection that is not otherwise possible in general equilibrium. Such protection could do far more good, than what are often ongoing attempts at finance reform, in general equilibrium conditions.

Of course, even in this form of corporate structure, some "dangers" for low income levels would continue to exist. However, these dangers would mostly be associated with the additional income that citizens are able to accrue - much as local discretionary income would also remain exposed to the normal taxation of one's state and nation. Protection of wages is made possible, by the fact that wages are tied to internally coordinated time value, which accrues to internal asset formation from a young age.

Wages as a basic commodity foundation, would receive protection for all local citizens by building time value as the central component of local asset structure. The service based wage to asset link is what makes the standard form of loan processes unnecessary, since housing, local ownership and other building formation accrue through time value.

This service wage to asset link, also makes unnecessary the fiscal transmission processes that are necessary for government in general equilibrium conditions. However - if so desired - participants would still have the option of generating local finance through discretionary income which is not connected to the local form of monetary transmission that takes place. In other words, discretionary income as savings for local loan formation potential, would be connected to surrounding economic circumstances through non local resource and asset related means.

Doing so would give these citizens the option to create the kinds of small loans for local business formation and related personal need, which today's large banks no longer have incentive to provide. Even though such loan structures might require equity in order to take place, such equity would be income based on the part of participants, rather than the wage equity which accrues within the system through one's personal time value.

Time Backed Money, Knowledge Use and the Productivity Enigma

Why are productivity gains so important for continued progress? For populations as a whole, it's not just about maintaining standards of living, but also important strides in knowledge use. And when knowledge use is limited to a subset of populations, important facets of it tend to be lost, during historical periods when populations experience extensive setbacks in some capacity. These have also been times when services formation is seen as a drain on wealth, instead of a valuable contributor to wealth formation.

During recent periods of nation building, the wealth of commodities and goods served as a point of origin for (economic) knowledge use dispersal, while governments have used fiat monetary formation to support a knowledge based elite. Unfortunately, access to higher education is hardly the same, as access to knowledge use and vital services formation. Further, this fiscal transmission process remains dependent on continued production gains, to maintain the services marketplace of production and consumption which already exists. What happens then, when productivity slows and negatively affects the structure of a government defined marketplace?

Essentially, smaller pools of revenue from highly productive activity are available, for today's fiscal transmission processes. Are there better ways to boost total factor productivity, given this unfortunate circumstance? Time backed money is one option, which I briefly explained in a post last year. Time backed money would create a base wage to generate local time value, infrastructure and building formation (non tradable sector activity), as contrast with the personal income from all other aspects of (global) resource capacity.

Knowledge use need not be limited to population subsets, because time backed money would make it possible for knowledge use to act as a wealth building component. This form of monetary compensation would allow time value to function as a common denominator to coordinate the scarcities of time use constraints, alongside the normal function of national monies as representative of total resource capacity. Time value would gain the ability to become a reliable local multi-use commodity, for a new form of corporate structure with a dual public/private nature.

Most important, is that time backed money could turn the complex fiscal transmission mechanism for knowledge markets (for small, decentralized groups) into a simpler monetary process. These are the conditions I've referred to as alternative equilibrium potential. When employment for time/knowledge based product can be paid for once instead of twice, there is potential for aggregate output gains. Indeed, similar possibilities existed all along for time based product in general equilibrium conditions, but special interests intervened to prevent the wealth formation of broader knowledge dispersal. This fact has contributed to the mass confusion of today's Republican party in the U.S.

Time backed money would also provide means to support what is often perceived as low productivity activity - particularly that associated with a multitude of maintenance functions. Symmetric compensation can make time value a point of origin for knowledge use, so that other revenue is not constantly necessary to generate knowledge dispersion for economic purposes.

As luck would have it, knowledge - important though it is - is also a highly random variable in terms of perceived value. Not only does a wide range of external factors determine whether time/knowledge based activity is deemed useful, essential or non essential, the reasoning often changes. By creating an economic space where time based coordination is prioritized over perceived values for personal aptitude or knowledge choices, knowledge dispersal can remain a constant economic function.

Thus coordination for time value would provide greater productivity for time based services endeavor, since full skill and/or aptitude is not needed in every instance of knowledge use. While time backed money would support routine elements of economic maintenance, it also provides a base of mutual support, for knowledge use which is difficult to qualify when individuals commit to time investment in personal challenges.

Even though time based product is recognized as important, the fact it only exists in limited free market form, tends to convince populations that time based product does not actually need to contribute to marketplace growth. There's just one problem with this rationale: the overwhelming majority seek education and time investment for the purpose of engaging in and producing time based product as a desired form of employment. This is why a marketplace for time value is needed, so that individuals are better able to discover mutual employment which better approximates the life challenges they imagined.

In all of this, the productivity enigma has a partial solution. Fortunately, the present decline in productivity does not have to result in a indefinite loss of aggregate output. With directly matched time value, higher productivity would not invariably be diminished, by the need to support (also important) lower productivity activities. The option of horizontal economic activity is important, given the fact many aspects of scale have been fully utilized in present day equilibrium conditions. A new form of scale for knowledge use can be built, through locally coordinated time value.

Just the same, time backed money would only be intended as a local base, to provide conditions for living and working alongside coordinated forms of lifetime services and social security. For the first time in half a century, individuals would have good reason to learn and remember the names and economic capacity of their personal neighbors. A time backed monetary base provides a point from which participants can contemplate global possibilities for investment risks and potential income generation. Among the positive attributes of separating wage from income: doing so makes participants aware of the nature of the resource arbitrage gains they would like to secure, and why those arbitrage gains may actually exist in any given moment.

Insofar as productivity value is concerned, often the best arbitrage gain for personal income (via traditional monies) is creating new product where no product existed before. How to think about differences in perceived productivity, especially given the fact what appears productive sometimes represents political capture and arbitrary marketplace limitation? Dietz Vollrath recently wrote a post which looks at productivity levels by industry, in which he understandably questions the ethical nature of apparent productivity.

Despite the fact "apparent" productivity isn't always representative of market broadening innovation, "ill gotten" market gains have - in their own indirect way - contributed to progress over time. Consequently, captured wealth gains aren't always a total negative in terms of marketplace outcome, since captured revenue can contribute to positive government results as well.

To sum up, time backed money could assist total factor productivity by spending once for knowledge use generation, where governments require twice the revenue for the same output. By far this government transmission mechanism was more effective, when total factor productivity was still benefiting from the accrued gains of scale increase. Fortunately, some knowledge transmission can now take place directly and locally, in an era where vast quantities of information and knowledge have become easy to access This fact is good news, for the potential of social organization as a contributor to total factor productivity.

Time Value: The "Use It or Lose It" Problem

Why has it proven so difficult for markets to coordinate between time based resource sets, versus other forms of resource utilization? Put simply, there is an imbalance in this regard, which continues to accumulate. Time based products have time and location specific characteristics, that set them apart from other forms of resource capacity which theoretically can be traded within any time frame. Even so, monetary representation presently treats all forms of product as though they are viable through the same mechanisms.

So long as economies maintain sufficient growth trajectories, balance between time based product and other resource capacity is possible under the same "umbrella" (of monetary transmission) for populations as a whole. But consider what may happen, otherwise. As governments gained power in recent centuries, they granted exclusive knowledge based rights for skills production to certain groups.

As it turns out, too much of the knowledge that was subjected to strict limitation, was also a central component of expected consumption. After special interests gained these privileges from governments, other groups in their turn were granted initial claims for consumption of this knowledge based product - particularly in the form of government pensions. Today, even though pensions can bankrupt municipalities at state and local levels, the staked claims for time/knowledge product that are contained in pensions, are where many budgetary problems originate.

Consider the situation, in terms of overall time aggregate potential. Unlike other consumption possibilities, everyone's time based product options exist in a single continuum of time use potential. When time/location slots in that continuum are missed for any reason, it may not be possible to make up time "cancellations" elsewhere, for participants who lost their position in the present round. The result is not just individual loss for production and consumption, but also aggregate losses. This is true not just in the sense of healthcare as potential (immediate) time match by provider and recipient, but also in terms of deteriorating health conditions, when such needs go unaddressed for years or even decades at a time.

The problem for money as representative of a single marketplace for all goods - whether time based or no, is that it cannot readily coordinate accumulating imbalances when they occur, without a specially designated marketplace for time value. Without a parallel (money represented) marketplace for symmetrical time coordination, money has no "choice" but to purchase all resource capacity as if it can be traded at any given point in time. However, time based product occurs along a single ongoing continuum. This holds true in the sense of time value which is sought at personal levels and is generally location specific.

While bestowed favors from governments in skills based production are understandable, that does not mean it is realistic to assume a full marketplace for healthcare options can exist under these conditions. However, instead of simply reacting to this unfortunate circumstance, it would be reasonable for governments and healthcare providers to share knowledge, with those who otherwise can't expect access to healthcare over the full course of their lives.

Time value is a "use it or lose it" form of resource capacity, in both production and consumption terms. Time specialty gains on the part of the few, have slowly but surely undermined other forms of time value at aggregate levels. These losses - while also monetary in nature - are nonetheless personal, because they represent potential which might not gain the chance for representation. Only consider the cumulative effects, in terms of social devaluation and lowered expectations. Perhaps this helps to explain why governments are becoming more reactive to those who are marginalized - whether native born population or immigrant. In the process, populations are being compelled to judge who does not "measure" up.

What a shame, that governments and special interests inadvertently encouraged their own populations to become judges as to who is "deserving" of anything, and who is not. It's time to take a closer look at potential time value, and find better ways to put it to use, for populations as a whole. With a bit of luck, there is still time to back out of this psychological quagmire.

Considering a Macroeconomic Framework

These recent posts from Tyler Cowen and Scott Sumner, encourage everyone to take a closer look at their own beliefs regarding macroeconomics. If only my own understanding was more complete! For example: even though I'd like to call a "time out" (to condense what I've written thus far into easier to read formats), I know I'm not ready. For me, this whole process is still evolving, and regular blogging keeps me connected and engaged.

What mental clarity I had yesterday, has also been thwarted by the terrorist attacks in Paris. The tragedy only deepens my resolve to do something. Surely, one way a productive world could remain strong, is for people to monetarily compensate one another for mutual and voluntary assistance. As things stand now, many still expect the strong to help the weak...even though the strong may be struggling to maintain their own economic circumstance.

One aspect of my thinking has not changed, since I began blogging. Through government policies, monetary transmission mechanisms ultimately distribute wealth towards service formation and time based product. Even though much of this occurs at national levels on the part of central banks, local factors need a chance to reemerge. Local corollaries for wealth creation and monetary transmission are possible, through closely coordinated services and investment formation.

Decentralized economic activity would allow time based product to become a stronger economic component, and it would reverse the slow motion train wreck of hollowed out work structures. I believe that local economies could generate sufficient complexity, to create simplified versions of a monetary transmission process. Even though wealth originates from tradable goods production in general equilibrium, new wealth is also possible from coordinated systems of symmetric time value. This process would generate an observable alternative equilibrium, as well.

Since many governments work with wealth creation results (in the form of income derivatives), they cannot contribute more to growth, than the fiscal flows which result from prior wealth formation. Monetary activity accounts for those initial flows. Monetarism is crucial, to provide accurate monetary representation and the acknowledgement of individuals as central to real economy conditions. Wages and income need to be dynamic - not static - to maintain ongoing activity. Market monetarism adds to this process, through representation based on what market participants are actively planning for the near future.

In order for the macroeconomic discipline to further evolve, it needs better definition and production capacity for services formation, than has been provided thus far. In particular, time aggregates are at stake, given the fact that services coordination faces growing imbalances. The dynamics of time and knowledge based service product are quite different from those of tradable goods. Most important: time based services capacity exists along a fixed spectrum or continuum. When that continuum is not followed in terms of coordination, services product is lost in ways that cannot be recaptured for the currently participating groups.

Fortunately, this single continuum is not a problem for tradable goods which exist separately from time, in that their volume can take place in multiple time periods without distorting product potential in aggregate. There's a simple way to think about the process: even though we can never regain lost time, we can often regain other lost resources.

Time based product, as a fixed component of a single continuum of time based possibility, needs knowledge use as a conduit between economic actors for better coordination. Even though individuals partake in intensive time based investments for healthcare, their time use continuum for actual participation, is a mere fraction of what insurance programs or governments may imply. Time aggregate value, instead of having broad applicability in production terms, exists mostly in consumer context.

By no means is the present the first occasion, in which time aggregate value has been inadvertently lost. This is partly why I disagree with Tyler Cowen's assertion (the first point in the above MR link), that 99% of all business cycles are real business cycles. Granted, traditional production (product separate from time value) can sometimes function for a long time, before aggregate capacity begins to shift in relation to the formation of time based product. But when that shift occurs, time based services coordination becomes increasingly difficult - both for budgets and the individuals who lose their roles in the process.

While everyone has understandably grown weary of hearing about tipping points - especially given the fact so many have already occurred - there is still one more which is important. The wealth of traditional production can no longer support all the needs of time based product through asymmetric compensation. Fortunately, this is only a problem insofar as it remains unacknowledged. Symmetric time value could provide much needed wealth creation, at the moment it is most needed.

There is more at stake, than just gaps in services coordination for consumption needs. Time based product exists in both consumption and production dimensions. The potential for broad based service structure, translates into human capital as a direct source of wealth. Through symmetric compensation, services could provide a starting point for new economic formation, as well as secure backing for more traditional production. This process would place new services into a monetary context, to buttress still existing fiscal capacity. And even though the real economy is responsible for growth potential, monetary policy is responsible for the maintenance of what the real economy creates.

Total Factor Productivity and Community Potential

Surely, total factor productivity has not flatlined since 1980. But how would anyone really know? Dietz Vollrath in a recent post, "Why did consumption TFP stagnate?", includes these thoughts in the post conclusion:

We've got this intuition that the service sector has changed appreciably over the last thirty years, but it doesn't show up in the TFP measurements...in fact consumption TFP doesn't reflect accurately the innovations that occurred. 

One thing to consider: some innovation exists in sectors which have means to reform labor definition. This provides more flexibility (consumption potential), but only within specific institutions with limited missions, rather than the diverse missions of communities as a whole. What's more, productivity which generates more product through less time utilizaton, is a traditional productivity measure. In other words, when knowledge or labor need to be adapted to (in the moment) unique circumstance, a different mechanism is needed. Time arbitrage would be one means to capture further productivity, through marketplace gains in total aggregates.

Presently, many service formations are defined by the degrees to which they (differently) compensate time use. As a result, decision making for occupational choices in services, may not necessarily represent what would otherwise be first choices for those who participate. To be sure, it is understandable that many in these groups receive compensation which goes well beyond time input. However, this compensation method arbitrarily impacts services marketplace capacity in multiple ways. All of which especially matters at the margins, where time use in the marketplace has become more limited than ever.

Some knowledge based skill sets also remain immune to automation, because they serve as consumption signals for other high income groups. As Dean Baker recently noted, no one in the highest paid professions was ever put in direct competition with their lower paid counterparts. Indeed, these higher paid counterparts still enjoy protected labor markets.

However, Baker's post serves as a reminder of the special interests which - with government's "blessings" - are responsible for many inequalities of the present. As a result, not only is Washington unable to "make amends" through further tax redistribution for services, it can't really address this labor dynamic without doing serious damage to some of its funding sources. Even so, these consumption factors need to at least be dealt with at the margins, where a services marketplace might otherwise not exist.

Otherwise, too many consumption issues stand in the way of the total factor productivity gains which might still be realized. Skewed production dynamics and sticky upper level wages are easier to address locally, because of the myriad of factors involved. As a result, new communities could organize for greater total factor productivity - hence more consumption options in services and asset formation - where states and nations would otherwise struggle to do so.

How so? By optimizing local time aggregates, which single mission institutions can't utilize. By their nature, today's local institutions - with missions which sometimes counteract the missions of others - are forced to pick and choose from skills sets among given populations. What's more, private industry too often ends up compromised by what appears as "opposing" needs in services formation - in large part because of their ill defined nature. In other words, all too often it is just not clear, what resources are actually available to compensate them.

What is needed are local institutions with missions which integrate services as part of wealth creation, while building time use gains at the same time. These new institutions would make it possible, to understand transmission mechanisms between wealth generation and the time value of services generation. By compensating time matching directly, services "confusion" disappears, and base income becomes the direct source of further local investment options.

These new institutions would restore value to personal time use, along with personal identity for millions who still wish to contribute to the marketplace. After all, service product demands time. It is not possible to reduce time use in a marketplace which is all about time, unless one is actually willing to destroy the marketplace to some degree.

Central to this dilemma is the fact that normal pricing cannot allocate for time use as it does for other resources, because other resources are massive compared to time aggregates. Even though other resources might seem infinite, that no longer inspires confidence in resource infinity, as a stand in for time in the long run. Too much of the present day services marketplace is already in decline. The need to be able to use time choice as a true marketplace option, is growing by the day.

Not only is time use availability a fixed commodity, it is the most scarce commodity anyone has...even though everyone has it. When a few skills are rewarded, while other needed skills go largely uncompensated (by comparison), a dynamic results in which many individuals cannot utilize time value for the coordination they need, to tend to ongoing responsibilities. When few options exist for time arbitrage, communities can lose consumption capacity as a whole, along with the greater productivity that time arbitrage could make possible.

To reconsider productivity, time as product needs to be taken more seriously. Again, Dietz Vollrath, regarding the lack of change in the last thirty years:

By a lack of change, I mean the service sector has not found a way to produce more services for a given supply of inputs, and/or produced the same amount of service with a decreasing supply of inputs. We often buy time when we buy services, not things. And it isn't so much time as it is attention. And it is very hard to innovate such that you can provide the same amount of attention with fewer inputs (i.e. workers).

Sometimes, production factors are not just about digital components and technology, but also the interconnected webs which individuals could generate for greater consumption and total factor productivity. Even though this historical moment surfaced decades earlier, a leap of faith is required, before populations gain the chance to back their collective potential. Hopefully, doing so will become a possibility in the near future.

Why Do Services Need to be Monetized?

Too many needed services are held back today because of supposed "austerity" circumstance, in spite of the fact that service formations represent great potential for economic growth. While some growth potential remains missing because of slowdowns in traditional production, gains in services formation would eventually expand the marketplace for manufactures and commodities formations as well. After all, it is difficult for citizens to fully participate in the marketplace when services access remains limited.

New services generation could be defined either as nontraditional or alternative production, should services be created so as not to generate further debt or societal obligation. In effect, these services would become a valid part of the supply side structure, in that they would not incur hidden societal obligations. Whereas traditional high value service formation often relies on proceeds from traditional production and international monetary flows, in order to take place.

As to the latter, the growth they generate is more interdependent, than would be necessary with nontraditional services production. While further growth would be a benefit of alternative services formation, services and production would not be "joined at the hip" in growth based terms. That would make it easier to accommodate supply side shocks as well - whether "good" or "bad" - because time use would become relatively more important than other resources which define environment.

How could services formation exist more independently of production? The fact that services become self supporting, would mean that production can move at different levels without completely upsetting transmission structures. The prime example in this regard are the ways in which assets are used to provide services flows. If asset structures are not completely bound to these roles, that in turn frees asset structures to more closely approximate what people want them to be.

The best part? Asset formation can in turn be readily subjected to highly productive (i.e. good deflation) innovations which would otherwise be held back both by special interests and services needs. If communities can generate services wealth directly, their infrastructure, asset and building component options immediately become more flexible. What's more, internally defined coordination patterns makes it far easier to accommodate higher population densities in a small core.

Consider the normal travails of declining production in recessionary times. In a larger sense, production aggregates should be increased because people find real gains in doing so, instead of being compelled to do so (i.e. maintain production) for needed services formations. By the same token: with fully developed time arbitrage, production levels could be relatively low (in given settings) without undue harm.

That would be possible, because of good deflation measures in currently existing assets and building formations for both living and working environments. Some individuals would choose to work less because lower cost living accommodations would not require a full work week. Or, they could opt for work which does not provide monetary compensation in a normal sense.

Presently, the entangled nature of traditional production and services, is part of the reason why governments struggle to make up for lost economic activity in recessionary periods. After all, governments are dependent on the proceeds of traditional production (which falters in recession) in order to generate the limited quantity of services which production aggregates provide. This also has bearing as to why a low interest rate doesn't imply government gains in borrowing for infrastructure provisions. Monetizing service formations - hence "setting them free" from production restraints, could assist governments in overcoming this fiscal recessionary quagmire.

Regular readers know that I use the term "monetized" in a specific sense: as compensation for local organized services formation and access, in coordinated time aggregates. Much of the austerity which limits work formations is arbitrary in nature, because of how services have been defined. What's more, some services are overemphasized because of legal and structural issues, even as service formation for the public as a whole continues to languish. Too much services access is also limited by hard credentialing* processes.

High skill knowledge use of the present is more often monetized (not backed by government redistribution), when it exists to serve middle to upper range incomes. Growth in this area became evident - for instance in the nineties - when legal offices emerged in central locations which were previously zoned for residential use. Commercial retail areas in that time frame were also increasingly replaced by tax preparation offices and the like. In more recent decades, what once would have been retail areas was instead given over to large freestanding structures for specialized medicine. However, these marketplaces cater more to a given portion of the income spectrum, than the marketplaces of the earlier twentieth century.

A lack of desirable or productive services formation is all the more problematic, given the fact that many with degrees also end up accepting work which exists below their skills capacity. Some of this, however, is due to higher education as an all too easy source of wealth capture. Again, the primary problem for education in the present has become its isolation from actual marketplace conditions. One result is a now inadequate services marketplace, for knowledge use engagement.

So long as many vital services exist mostly in a fiscal capacity, they will continue to be limited in relative terms. In a sense, one could think of fiscally provided services as existing in half the capacity that might otherwise be possible. Not only is their fiscal nature indirect in terms of job formation: it also involves a debt formation process which means the service is paid for not once, but at least twice. In some instances, perhaps half of the population is employed than might otherwise be possible.

Time arbitrage would not only monetize new services formations, it would make them possible in areas lacking in economic complexity. Furthermore, time arbitrage could alleviate the burden of sticky wages which contributes to unemployment. By compensating time use as anchored to local asset and production formation, citizens gain a better idea what compensation is actually possible. While these forms of employment are more self directed than traditional employment, the fact that locals support the inherent safety net structure is what provides work security, rather than job security. Much as individuals once tended gardens well after retirement, individuals would tend their local gardens of economic connections, well after more strenuous forms of work have been set aside.

The fact that production aggregates have been held back because of limits to marketplace access in general, is what makes it difficult to determine what a long term growth trajectory might actually consist of. Once populations achieve better balance in terms of asset formation and services structures, it will become easier to determine what future possibilities could be.

Monetizing services would also provide greater opportunities for returning time use aggregates to a central role in the economy. Not only would this be a tremendous plus for measurement in terms of a nominal level target, but it would also make economies more resistant to the dutch disease which can be problematic when nations become too reliant on commodities instead of individual input. Presently, many still view production as more important than individual participation, but any continued focus with this mindset only generates further economic imbalance in the long run.

I could easily continue, for the question posed by this post title is quite general in nature! Monetizing services could go a long way to establish normalcy, even though it would be a slow process which occurs mostly at the margins of primary equilibrium. Indeed, that is a good thing, because inevitable mistakes would be small scale. Plus local "victories" would present potential knowledge and land use patterns that populations might dare to undertake, if the risks of doing so are better understood.


*Hard credentialing is a major contributor to wage stickiness - hence a lack of overall work availability and knowledge dispersal in services formations. Soft credentialing would allow local populations to credential based on voluntary project and skills proposals, alongside ongoing negotiation for services needs.

Needed: Conscious Echoes of a Larger Whole

How to envision economic growth, in a time when many are opposed to further expansion because of potential effects on what they already hold? In part, the knowledge that is still needed, represents an inward journey which GDP can also account for through time aggregate measure. The expansionist or commodity based growth which could accompany this, would be in better balance because it would occur at a more basic level.

Think of economic relationships as relatively unconscious patterns which - for long periods of time - are capable of working reasonably well. It is only when those existing patterns reach certain stages of maturity, that a rising price level for a widely diverse whole may appear detrimental to additional inclusion. And yet, further growth is always needed in order for systems to maintain their inherent dynamism.

If growth cannot take place through the primary equilibrium, the whole may need to generate miniature, somewhat conscious replications. Tiny and relatively complete wholes in terms of assets/production/services formation, can generate new growth. They can also provide ample evidence that a nominal level target matters in more than one dimension.

This economic expansion can take place in small "growth burst" environments, which can rise as they develop and slow as they mature. In the meantime local density potential is filled and further complexity is generated. At a certain point, the internal growth of knowledge use would become more important than locally needed production. Tiny local equilibrium (with its tiny monetary transmission) can grow without engendering traumatic shock on the part of tight money advocates. It would be growth which does not make the general equilibrium margin appear as though needing to encompass monetary policy "infinity". Many replications would stay relatively small, particularly the communities with walkable centers.

The unconscious element of a marketplace - i.e. primary equilibrium, is desirable in many respects. After all in the right circumstance it offers great flexibility, which contributes to countless collaborations and interactions among individuals. The fact that large systems work best with minimal conscious coordination, provides strength - as evidenced by the failed planned economies of the twentieth century.

What can be done, then, when primary equilibrium either needs to change or continue growing? Small local templates can be generated, which allow freedom of both individual and group action. Free markets also mean determining how to engender the participation of as many as possible. Perspective as to earlier circumstance is also important, to determine how varying approaches were once able to work well together. In primary equilibrium (i.e. international monetary flows for services), earlier approaches still work, but in a less dynamic state.

Most recently, production and manufacture were able to (widely) contribute to reliable services systems growth for more than a century. They were able to do so, providing multiple private interests had ample room for further growth in their own right. This long lasting production and manufacture trajectory also created the growth trajectory for GDP and output, which the U.S relied on until the Great Recession.

Only now has that earlier growth mechanism been cast into doubt. As a result, services systems now need to be able to generate further wealth through their own steam. Because services such as healthcare and education are so closely linked to government activity, it is difficult for them to make the transition in a broad based setting. The transmission mechanism of the monetary system still has considerable bearing on this relationship as well.

By no means is this the first time that the need for economic evolution has only been partially met, particularly given political realities. Yet the potential for combining past lessons with future possibilities, is often missed. Why? When push comes to shove and hard times call for structural reform, often the interests of those in power overcome rational suggestions. As a result, inclusive measures capable of honoring the economic intent of the individual, get pushed aside.

Indeed, maintaining economic complexity and vitality, seems to suggest creating conscious echoes of the larger whole. The best part? One need not know how much time to utilize, how many resources to add, or how much money to contribute to the economic picture. Rather, a well defined path for the ongoing "dance" of time and resource use, is primary. In this sense, a (miniature) nominal level target is not so much a hard rule, as it reflects the current environment of economic possibility - perhaps a monetary "season". Given the chance, money stands at the ready, for what people actually want to do. From "The Lost Writings of Wu Hsin" (HT Farnam Street):

There is a natural rhythm to the workings of the world. Some are discernible while others cannot be discerned. It is the dance between the two that creates action.

How to consider a nominal target in this context? First, the inclusion of all participants makes the natural intersection of resource and time use easier to balance, which in turn provides a reliable measure. Locally recognized (and recorded) price levels are generated in time use and asset structures, which develop and mature over time. Meanwhile, the more "porous" or "open to the world" component of the local price level follows tradable goods, as they are integrated into the local assets to services equilibrium. The rise and fall of local growth trajectories would provide clues as to how various elements interact and affect growth, for the primary equilibrium.

System wide recognition of equilibrium "spin-off" makes it possible to approach a number of problems which are difficult to tackle on their own. Local equilibrium would make taxation more effective for needed services. Just one example: the underemployed and the poor face considerable taxation on both income and consumption. And yet their tax contribution is subsumed into a mega structure which can neither effectively utilize the "small" contribution (so large for the poor) or provide real value to those who are expected to pay it.

Yet populations remain caught up in asking why disadvantaged groups cannot adapt to the existing equilibrium. The question becomes unnecessary, when equilibrium is in greater need of "adaptation" than those who cannot readily enter. No one yet knows what the important services and knowledge work of the 21st century may consist of. No one can be certain yet, what the still missing marketplace actually wants and needs. But at least monetary compensation efforts can begin, as new participants stumble their way towards a more inclusive services and production environment.

Why should anyone go to the trouble to generate a more conscious form of economic circumstance? No one has to, by any stretch of the imagination. Still, doing so would allow our economic reality to move beyond the apparent stage of decline which some now insist is inevitable. To be sure, there is inevitable decline in many things and many aspects of life. But the idea of economic decline is not only premature (no asteroid on the way that I know of). It also ignores the hopeful realities of millions of individuals who by no means are ready for decline to be imposed on them by others. Indeed it is wrong to do so, for all too many in this world are at a stage of growth which has scarcely begun.

Direct Skills Arbitrage is Natural Momentum

It's time for me to begin addressing the fiscal versus monetary debate by the terms of which recent suggestions have been put forth, on the part of Market Monetarists and others who believe in the capacity of aggregate demand both as a stabilizing mechanism and a means for growth. While I responded to Cardiff Garcia's recent post along these lines here, my initial response was primarily in terms of backing nominal targeting as the best framework for moving forward, and so I was greatly encouraged to see that Steve Randy Waldman (Interfluidity) also endorses NGDP as a medium term solution. However, his recent post was especially in response to the suggestions which David Beckworth made for helicopter drops in this recent post.

Suffice to say there is a world of material in these links which is but a fraction of the ongoing discussion, in which it appears some progress could eventually be in the offing (also check the links at the bottom of Waldman's post). So, this post is also a beginning point of sorts, in which I will make some preliminary arguments for - rather than helicopter drops - direct skills arbitrage as coordinated, measured and validated at local levels for ultimate inclusion in open market operations, when in fact a community has diversified to a point in which it becomes confident enough to once again include immigrants and individuals from outside their own area for further growth. For those who are new readers to this blog, I have a recent post which is a really good starting point for this line of thought. In that post, I argue why it is desirable to coordinate  knowledge and skill arbitrage time sets from the same vantage point, in incremental terms. What I want to further explain here is how that could line up incentives for better economic linkages, then I want to return to some of the arguments in the first paragraph.

What would make infinity sets for arbitraged skills use incline positive? When a community allows every member to participate in skills arbitrage and educational aspiration to their fullest capacity, aggregate economic growth remains positive so long as population rates also do, even if through good deflation. However, there needs to be coordinated aspects of the resources necessary to apply to skills and knowledge use, in order for further monetary gain to be possible for individuals who take special effort to make that happen. (Open market operations for skills would only reimburse one unit per one hour of time, and our time is very limited). For example, there is considerable wealth in the infinite variety of product associated with healthcare, which can be tapped into by every member of a community who desires to invest in this particular associated infrastructure.

Any community that coordinates healthcare through its own educational and organizational capacity has tremendous gain as well by the ability of every citizen to not only invest in needed local equipment and resources, but also the capacity to invent the equipment a community needs. While our present institutions have rules that circumvent the majority of innovative processes from those outside the established framework, the fact that this is community coordinated (i.e. outside institutional frameworks, plus all economic activity under one unbrella) sidesteps the thousand and one actions that prevent both economic access and innovation in this regard.

Let's consider an additional gain on the part of community: with today's institutional separations, a community pays through taxation for l2 years of schooling for all youth, by lifetime taxes on housing, in the U.S. However, the community does not necessarily benefit from all that expense, in that the student often needs to leave to find a place where they can ply this (first) set of skills. If that were not enough, the community still starts over again in what they need to reimburse for healthcare expenses. In this sense, it's as though they get no return on the education tax base. By local coordination of education and knowledge/skills use potential, some of those double costs can be avoided. Not to mention, the time spent in school does not represent the same gamble for the individual, in that there are communities ready for their skills when institutions may have no room, for those skills. But the biggest benefit by far is that for the community, which by tapping into individual skill sets, brings about a far more positive and effective form of local wealth capture, than the self limiting interpretations of construction interests. By tapping directly into needed skills, a community's tax base also changes in dramatic ways.

Before this post gets too long I need to go back to some of the conversations which prompted it in the first place. Particularly my title, in which I posit direct skills arbitrage as a natural growth momentum, which - in a long term or aggregate sense - would certainly limit the possibility of a return to the zero bound through the application of near total economic access to both production and consumption activity, on the part of populations. Even though Scott Sumner proposed a negative 2% IOR as momentum to counter any (potential) return to zero bound, he nonetheless believes that a constant NGDP level would make such a measure unnecessary. However, I remain concerned that present day limitations of knowledge use in our institutions still work to the detriment of productivity factors standing in the way of equilibrium. What's more, limitations on knowledge use continue to cause problems in transmissions between skill sets and assets in general.

Waldman also links to Matt Bruening, who has a good article regarding cash benefit programs (which David Beckworth noted as amenable to helicopter drops). Bruening makes the point that government allows the recipient to decide how to spend the money, and notes that administration costs are minimal, citing the Social Security administration which "only spent 0.8% of its total expenditures on administering the program in 2012". If only all cash benefit programs could be so effective in that regard! While my counter (below) is only anecdotal, it nonetheless influenced my reaction to said administrative costs.

Over a period of time I was included in a household which received benefits from the SNAP program (formerly food stamps). Perhaps because the program was overwhelmed, there were numerous months in which the food benefit was only $10 per month. However, here's what the local office had to do to provide that $10 or whatever small difference thereof: collect copies of billing to chart monthly invoices for charges often in the thousands of dollars, for ongoing medical and related expenses. That meant providing dozens of copies to their office each month, some of which would invariably get delayed by the institutions providing them, i.e. coming in after the needed due date. In other words, all that effort on everyone's part for $10 per month in food assistance was definitely worth no one's time!

Program efficiencies depend on a large extent whether social frictions exists as to the program's existence, and clearly there has been resistance to food assistance in the U.S. for quite a while. I would certainly be concerned about resistance to permanent forms of helicopter money. And, as Waldman adds in Note 1 of his post: "However, permanent heli drops that are broadly distributed but accumulate to a narrow class might lead to expanding inequality, financial instability, and social mayhem." Think about that for a minute. What are the most difficult "wish I hadn't done that" programs to rid ourselves of, once they are actually enacted? The ones that benefit a narrow class! Something as seemingly innocuous as SNAP by which one readily buys from a wide marketplace, also means there must not be enough special interests standing at the ready to protect the SNAP program.

Ultimately, we need to overcome inefficiencies in the system by negotiating for services production and consumption in ways that can be measured and validated both locally and nationally.  Local economies can address problems in a nation's transmission mechanism by capturing skills wealth locally, and thus tapping into the greater efficiencies of global goods by making knowledge/skills use a more central point of wealth transmission. Such a method is certainly more sustainable than the unbearable treadmill of inefficient construction for services funding, which continues to limit skills use and employment in the present.

Robots Need Not Apply: Say's Law and the Work We Really Want

Recently there have been quite a number of discussions about the growing effect of robots on the workforce, and Robin Hanson (of Overcoming Bias) listed a short summary at a recent post for all who are interested. Hanson - along with the other discussants referenced here -  holds views on the future which are quite different from my own, but what was interesting for me is that he doesn't believe we are near as close to any potential singularity, or "rise of the robots", as some might believe. Certainly, technology has been well positioned to take on more and more repetitive tasks and even some non repetitive, but robots are not quite ready to take on the more important tasks of our lives. And even if they were... then what? The choice really is ours, and the way to reclaim the work we want comes from the most unexpected of places: a reclamation of Say's Law, which in simple form could be stated as supply creates its own demand. Say's Law could apply to services just as well as manufactured products, with more thoughtful use of our own aggregate time commitments, and the use of nominal targeting.,

Where to begin? First, it helps to put aside all unnecessary complexities and look at this with a "beginner's mind". For instance: Keynesians are right to say that Say's Law has been put through the shredder, but I guarantee you that is nothing to be proud of. Nothing makes sense if people have to give up on finding demand for the supply of their own skill and effort. Instead of people gaining value from their own merits, artificial limitations to knowledge use now have us viewing one another primarily as competitors for both scarce resources and jobs.Yes, certain resources will always be scarce. But those generally are not the ones we need every day. Many important services that are even more important than actual product, were also set up to appear as though scarce. Because we didn't realize we could become our own suppliers/providers of knowledge and skills services, the demand for them now has people backed up in "waiting rooms" of all kinds...the modern day equivalent of standing in lines for manufactured goods, in the twentieth century.

To be sure, there is plenty of work to share with the robots which readily take repetitive tasks of all kinds, including highly technical and demanding ones. Eventually, there could be robots for much repetitive work, but  some of those tasks will always remain worth keeping for ourselves. The main problem for us is that we have not quite thought through - monetarily speaking - how best to apportion a growing amount of the work we want and need most for a productive society.  Part of the present problems with central bank transmission mechanisms reflect earlier default settings for services provisions which are no longer adequate. Before we look at more effective ways to utilize our time, there are four categories that we will eventually want to either integrate into our routines or assign to robots: high skill non repetitive, low skill non repetitive, high skill repetitive and low skill repetitive. This is a dialogue that all need to take part in, and it should not be rushed.

The problem we face now is that we are trying to take on increasing amounts of life's challenges with neither money or economic measure. Some efforts happen in volunteer settings where only a fraction of potential clientele are served. Some is work that doesn't get counted as economic activity because it takes place within our families, friends or extended networks. What's important here is that there are times when we need to be able to accomplish such tasks beyond our own circles of activity, especially when our existing institutions continue to "outsource" portions of their activities to us on a regular basis, in spite of our full schedules. Whatever coordinated systems we eventually create, need to address that growing reality. Institutions can't remain strong by robbing individuals of their limited time, robots or not.

Some of the more challenging aspects of work might also exist as informal coordinated scaffolding of sorts, for the growing challenges our institutions cannot handle. This is why rights to knowledge use is so important. Otherwise, we will not be able to fill in for our institutions when they do fall short, and we certainly would not be able to reimburse ourselves monetarily. Institutions presently capture knowledge use within their bounds in ways that make it difficult for people to work together to find solutions, or even to perform the simplest volunteer functions inside of institutional settings. No amount of robots and outsourcing is really going to substitute for the mental challenges between institutions which we will always need to take part in. Likewise, there will always be important research projects that present day limitations on investments and tax collection cannot address.

Rights to knowledge use also allow us to reflect the best of civilization wherever we are, even to the point that a small town setting is fully capable of becoming a mirror of the world around it. Without rights to knowledge use, the individual is not capable of actualizing the wealth potential that took such time and resource use. With clear and designated rights, an entrepreneurial understanding as to arbitrage would also gain social settings where preferences and wants can often be dealt with on a one to one basis. Like the free markets and bureaucratic orders of the present, such preferences could be expressed both in timed and ongoing, spontaneous settings. Knowledge can only become an abundant good when we actually give ourselves the right to use it, otherwise austerity remains a constant threat in the background, even when it is constrained.

Applying Say's Law to arbitrage of our most basic obligations and skills sets is also a good stabilization strategy overall. No  nation can readily control the vagaries of commodity changes and circumstances, but the social aspects of our lives do not change so quickly, which is why they need special consideration now. Even though what we are able to do also depends on the resources at our disposal, the aggregate value of our time is the best anchor, even if a lack of complexity in one's economy makes it difficult for income and consumption to be the prime monetary representation. Plus, whenever populations feel positive about coordination in economic relations, efforts to maintain such coordination in resource use are also more likely to come to fruition. The better we are able to measure all economic activity, the better off we are.

NGDP, Economic Actors and the Transmission Mechanism

From my earliest days of reading The Money Illusion, I identified with Scott Sumner's excitement about nominal targeting and the ways it could potentially affect the entire economic spectrum. Of course when a seemingly simple idea meets a complex world, confusion ensues. Plus, while the implications of nominal targeting go well beyond macroeconomic concerns, NGDP level targeting is not yet a reality and so the primary discussion remains in macroeconomic terms. The fact that psychological and social factors also underlie monetary policy concerns is not always easy to acknowledge. Perhaps for that reason, comment threads on monetary and macroeconomics blogs occasionally seem to run in circles.

While all market monetarists agree on the core concepts of measurement (whether by central banks or free banking), interpretations vary for any potential growth trajectory. Economists in particular may be quite specific as to their preferred target, depending on whether they believe an economy can continue to grow. More importantly, one's belief system regarding the role of human skill in wealth creation could make a tremendous difference. That last point is especially important, given that the proposed anchor basically revolves around existing income and consumption patterns.

When discussions about the transmission mechanism do arise, one hears the technicalities of course, but below the surface lie individual conceptions as to what roles governments and citizens should play. Most importantly, the core concept of NGDP is "radical" in a way that hasn't quite been explored, and Scott Sumner has only alluded to from time to time. How so? The fact that people are even talking about moving the prime notion of wealth away from precious metals and other important resources to actual economic actors is a BIG DEAL. What's more, some are not so convinced about human potential right now, especially given that skills investments have suffered such blows in recent years.

Gold and other metallic standards of our monetary past were not quite so simple as they may seem. By putting the locus of wealth outside an actual population, notions of wealth could be more easily controlled by prevailing outside interests of the moment, which often represented the current "supreme" commodity. Today, interest rate targeting fulfills a similar function by focusing on the ability of banks to lend as the primary source of wealth. So thoughts of wealth as residing in consumer potential (all talk of consumer economies aside) can be a bit unsettling, especially when monetary equivalence is not viewed in terms of human skill. To be sure, money is connected with skill potential, but the correlation is not strong enough to convince many that this is in fact a suitable anchor.

While some individuals in developed economies have a sizable degree of monetary equivalence, that nonetheless does not seem relevant enough to apply to entire populations.  One senses this uncertainty not only in discussions about zero marginal productivity and sticky wages, but in what people interpret as appropriate growth targets. Those who place more emphasis on aggregate skills wealth tend towards higher targets, while others who question the ability of skills to translate into actual wealth may prefer lower growth targets or even no expansion at all.

In all fairness I admit there are reasonable grounds for such uncertainty. Were we to remain in the status quo of the present with no structural change, real long term growth would be hard to come by. With little consensus as to a way forward, the transmission mechanism of the Federal Reserve starts to seem like a stripped gear, by which Keynesians galore pray the car can get down the mountain and keep coasting until the long term when everyone is already dead...I have as little use for long term dead logic as for Armageddon dialogue, and would rather see the vehicle get a new transmission so as to continue right up to the next mountain and beyond.

But what exactly does fixing a broken transmission entail? To be sure, it depends on the model of the car (or nation and central bank) but it also depends on whether people are willing to determine how skills in general can become a valid component of monetary equivalence. The first step is to acknowledge that people need the service economies that are threatened, and debate how they can be transformed into more sustainable forms. None of this is to suggest that NGDP could not be realistically targeted in the here and now; only that it needs to be accompanied by real growth, for people to see nominal targeting as the solution it actually represents.  As Ben Bernanke has stressed, monetary policy cannot do the job all alone. Citizens also need to believe in growth and their own potential, so that they can create a better future with the help of their own printing press.